With non-cyclical mega-cap, P/E ratios actually mean something. It is very difficult for a stock to justify a P/E ratio north of 20x earnings once a business is worth over $250 billion. Earning high returns becomes quite difficult once tens of billions of dollars are involved. This is where the economic concept of “diminishing returns” originated. I think of this when I note that Apple delivered investor returns of almost 80% in 2019 even while profits barely inched upward.
From a P/E perspective, this is where Apple has averaged trading in the past ten years: 15 (2010), 14 (2011), 12 (2012), 12 (2013), 13 (2014), 12 (2015), 12 (2016), 14 (2017), 15 (2018), 16 (2019). From 2015 onward, Apple was a business that could fairly be characterized as an incredibly profitable business with $100+ billion in cash, enormous profits from iPhones driving over half of sales, and an electric array … Read the rest of this article!